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Whitewashing balance sheets not the solution: AIBEA

Banks should develop a mechanism to recover their money .

By AuthorY V Phani Raj | 14th Jun 2017

Open

Hyderabad: The bad loans situation in the Indian banking system

is alarming with the overall amount estimated to breach Rs 15 lakh

crore, of which public sector banks alone have exposure to about Rs

8 lakh crore.

In an effort to clamp down on bad loans, the Reserve Bank of

India on Tuesday identified 12 accounts for insolvency proceedings

with each of them having over Rs 5,000 crore of outstanding loans,

accounting for 25 per cent of total non-performing assets (NPAs) of

banks.

These 12 accounts would qualify for reference under the Insolvency

and Bankruptcy Code (IBC). The central bank, however, did not

name these defaulters.

The Reserve Bank had set up an Internal Advisory Committee (IAC)

that comprises of a majority of its independent board members, to

AIBEA’s Banking News

16 JUNE 2017

NEWS BULLETIN FROM ALL INDIA BANK EMPLOYEES’ ASSOCIATION

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advise it on the cases that may be considered for reference for

resolution under the IBC. The IAC has arrived at an objective, non-

discretionary criterion for referring accounts for resolution under the

IBC and recommended for IBC reference of all accounts with fund

and non-fund based outstanding amount of over Rs 5,000 crore,

with 60 per cent or more classified as non-performing by banks as

of March 31, 2016.

All India Bank Employee Association general secretary C H

Venkatachalam told Telangana Today, ―The government and

Reserve Bank of India should make efforts to recover the money

from the defaulters. The current approach only indicates that

they are trying to resolve NPAs from the books of

accounts/balance sheets.”

The banks made a stable operating profit of Rs 1.5 lakh crore in

2016-17. This was subject to various provisioning requirements and

after the overall provisioning was done, there has been a net profit

of Rs 574 crore. Banks balance sheets are burdened with provision

for bad loans.

Venkatachalam adds, ―The current measures are encouraging banks

to sell bad loans for less amount which means it is only going to

bring losses to banks. They will never be going to recover their

money from this exercise. RBI is making banks to sacrifice in order

to reduce their NPAs.‖

Talking about bringing defaulters to law, he said, Mallya owes Rs

9,000 crore to banks. If the government applies insolvency law to

him, he will removed from the board, someone will replace him,

fresh funds be given to revive Kingfisher and that effort may

succeed or not. Mallya as a defaulter will not be made accountable

to what he owes and he will escape from his responsibility.

―I don‘t see any hope in the insolvency route that is being tried out

as it is not going to result in the recovery of money, which is the

only solution to resolve the whole issue. Big names like Videocon

today owe Rs 47,000 crore. Can the RBI or the government recover

the money from the company? Whitewashing of balance sheets and

shielding the top defaulters by not naming them in public is not the

right approach,‖ he said.

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Winsome, Lose Some: Jatin Mehta and

the Great Rs 7,000 Crore Diamond Heist

BY GULAM SHAIK BUDAN

The three year-long CBI investigation into Jatin Mehta’s Winsome Diamonds has finally come to an end. While there are a number of questions still remaining, will the guilty be punished?

A screenshot from Winsome Diamond’s financial statement for quarter

ending March 2014. Credit; Winsome Diamond.

Note: On May 11, The Wire received a legal notice from Salil M. Thakore

on behalf of Winsome Diamond and Jewellery. The notice directed to our

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attention to a number of legal suits filed by Winsome against the UAE

entities mentioned in the story. In April 2016, the company informed the Bombay Stock Exchange that it had won a number of cases against its

large defaulters in the UAE. The company said that a Sharjah Court had ―dismissed the petition of Al Razin Jewellery FZE and Al Faheem Jewellery

FZE and ordered them to pay USD 27.23 million or its dirham equivalent with 5 per cent interest to the appellant (Winsome)‖.

In addition to this, the company has also pointed out that allegations of

money being siphoned off are ―absolutely false and have no basis‖ and is ―evident from the fact that in the banks‘ case itself filed at DRT,

Ahmedabad…. the banks have specifically stated that the goods have been sold supplied and delivered by the companies to its customers at

UAE and the customers in turn have defaulted by not making payments.

Hyderabad: In early 2014, Winsome Diamonds and Jewellery – formerly

known as Su Raj Diamonds, but now better known as India‘s second

largest corporate defaulter after Vijay Mallya‘s Kingfisher Airlines –

acknowledged on record that the Central Bureau of Investigation had

visited their offices.

In its financial statement for the period ending March 31, 2014, the

company also stated that it had received a notice from the Mumbai

police‘s economic offence wing and that its ―management and directors‖

had ―fully cooperated with the agencies during their investigations.‖

Fast forward three long years. On April 5, 2017, the Central Bureau of

Investigation (CBI) finally booked six cases against the Winsome Diamo

nds and other group companies.

Initial reports often suggest that investigative authorities plunge into

action within days after they received formal complaints from banks. But

the long gestation of this case suggests that it may have been sidelined

after the change of power in New Delhi in 2014. For the past three years,

the CBI has investigated without producing any FIRs or arrests – which is

curious because it was suspected as early as August, 2014 that there may

have been more than a hint of fraud.

While the mainstream media spotlight often falls on Vijay Mallya, there

has been conspicuously less attention devoted to Winsome Group

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promoter Jatin Mehta, who, going by some estimates, may be the biggest

defaulter in Indian corporate history.

Back to the beginning

Winsome Diamonds had raised Rs 3,420 crore from 14 different banks by

2011. And these loan limits were raised again to Rs 4,617 crore by the

first quarter of 2012.

The credit was given to three group companies: Rs 4,366 crore to

Winsome Diamond & Jewellers, Rs 1,932 crore to Forever Precious

Diamond and Jewellery and Rs 283 crore to Suraj Diamonds.

According to the Economic Times, Indian banks had issued standby letters

of credit (SBLC in banking parlance) similar to guarantees in favour of

international bullion banks like Standard of South Africa, Standard

Chartered London and Scotiabank, which were supplying gold to Winsome

Group. As the Economic Times points out, ―the arrangement was simple:

if Winsome failed to pay the bullion banks, Indian banks would step in to

pay for the gold consignment‖.

As all the loans were grounded, within months Jatin Mehta resigned from

the company as director. Mehta first resigned from Forever Precious

Diamond and Jewellery on August 13, 2012 and from Winsome Diamonds

and Jewellery, the flagship company, on November 9, 2012.

Mehta claims that the company had failed to pay because Winsome‘s

customers – UAE jewellers – were hit by derivatives losses and were

unable to pay Winsome. In turn, Winsome Diamonds failed to repay the

loans to various Indian banks.

From mid-2013, the group started defaulting on loans, and in October

that year, banks declared the group a willful defaulter.

In early 2014, the banks knocked on the door of CBI. Both the CBI and

the Economic Offence Wing (EOW) of Mumbai police raided Winsome‘s

offices. According to multiple sources within Indian banking circles, after

this point the investigation slowed down. This coincided, multiple senior

banking officials say, with the change in government in 2014.

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Rajan dragged PMO

Raghuram Rajan, then RBI chief, sensing the mounting pressure of NPAs

on banks and the role of the powerful people from the real estate and

diamond sectors decided to take the matter to the prime minister‘s office

(PMO). In the first half of 2015, he wrote to the PMO seeking ―concerted‖

action in this regard.

The Hindustan Times, quoting sources, noted that Rajan pegged the value

of the scams at about Rs 17,500 crore. In the letter, he also outlined the

reasons cited by banks for delays in their investigation and the status of

the cases as obtained from the CBI.

Rajan also later confirmed that PMO was pursuing big default cases.

While speaking at a seminar on the topic of ‗Resolving Stress in the

Banking System‘, in June 2015, the former RBI chief said:

For fraudsters, quick and effective investigation by the investigative

agencies is extremely important. We should send the message that no

one can get away, and I am glad that the Prime Minister‘s Office is

pushing prosecution of large frauds.

Rajan also added, in an warning:

And for those who have diverted money out of their companies, especially

into highly visible assets abroad, a stern message sent by bankers sitting

together with investigative agencies should help send the message that

the alternatives to repayment can be harsh.

Who alerted Jatin?

The Supreme Court also believed that the NPA issue was a matter of

serious concern. While hearing a petition on NPAs in 2016, the-then chief

justice T.S. Thakur and justice R. Banumathi said that the court will

examine if the total amount of defaulting loans running into crores of

rupees can be disclosed. On April 12, 2016, they came down in favour of

public disclosure of defaulting loans that ran into thousands of crores.

A few months after the court‘s decision, news broke that Jatin Mehta had

become a citizen of St. Kitts and Nevis. Located in the Carribean, St Kitts

and Nevis is widely known to be a tax haven. More crucially, India does

not have an extradition with the country and analysts point that out that

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it will be nearly impossible, if it is required, for the Indian authorities to

bring Mehta to book.

Doing business in the UK

As per the records of Companies House, the registrar information

companies for UK, Jatin Rajinikanth Mehta is a citizen of Saint Kitts and

Nevis in the Caribbean. He now owns a company called Diamond

Distribution Company (UK) Limited that was incorporated August 1, 2016.

Mehta has listed his residential address as 1 Bell Street, 2nd Floor,

London, England, NW1 5BY.

In sharp contrast to Vijay Mallya, Indian banks are left with almost

nothing with which they can recover their loans Mehta. The Times of

India reported in August 2014, that the banks were left with nothing.

Journalist Josy Joseph noted that ―the collateral security provided by

Winsome is worth just about Rs 250 crore‖.

―…Jatin Mehta may not have many assets in India. He used to take

commercial spaces on rent, and operated through his trusted staff and

managers. Investigators have so far been able to track down just one

property owned by his family members, a flat in his mother Gunvantiben

Mehta‘s name in Malabar Hill in Mumbai,‖ the newspaper report said.

Where is the money?

On April 5, 2017, the CBI registered six separate cases against Winsome

Diamonds and Jewellery Limited, and Forever Precious Jewellery and

Diamonds Limited, and their chief promoter Jatin Mehta for allegedly

cheating three government banks to the tune of Rs. 1,530 crore.

CBI spokesperson R.K. Gaur said that it was alleged that Central Bank of

India suffered losses of Rs 699.54 crore from Winsome and Rs 255.24

crore from Forever. IDBI and Vijaya Bank suffered loss of Rs 133.12 crore

and Rs 55.68 crore on the account of Winsome and Forever respectively.

It is suspected that all of the company‘s 13 UAE-based buyers were in

connivance with Mehta and that they have siphoned off the funds.

Times of India raised doubts about this deal in 2014. The report

also narrated how the money was allegedly siphoned off:

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Winsome has 13 distributors in the Middle East, of which 12 are controlled

by one Haitham Sulaiman Abu Obaida. He owns Italian Gold FZE, and has

the power of attorney on behalf of the other distributors.‘ According to

documents with TOI, it is now clear that Obaida also controlled some of

the suppliers of Winsome, and fully owns at least one of them, Al Noora

FZE, a key supplier of Winsome. Raising questions about the so-called

distribution network of Winsome, documents show that 10 of its

distributors were incorporated only in 2012, five on the same day, June

25, 2012.

The 11th distributor, Al Mufied Jewellery FZE, was registered in 2010. The

12th distributor is a company named Al Alam Jewellery FZE, incorporated

in 2010 in the Ras Al Kaimah Free Zone and had Suneil Mehta as its

director.

It isn‘t clear who Mehta is, but Al Alam Jewellery is fully owned by Herald

International, which is based in the Bahamas, a tax haven.

Even-Zohar’s stand vindicated?

Diamond trade expert Chaim Even-Zohar, who runs Diamond Intelligence

Briefs, alleged in 2016 that the money had been laundered to US-based

company Pure Grown Diamonds and IIa Technologies of Singapore and

Malaysia.

The synthetic diamonds that have were produced by IIa Technologies of

Singapore and Malaysia, and sold by its US marketing arm, Pure Grown

Diamonds, could be declared as the fruits of money laundering, according

to Zohar‘s investigative report.

Even-Zohar reports that at least three of Mehta‘s UAE-based suppliers

were listed on the block global insurance policy of Su Raj Diamonds (later

called Winsome) and then were taken off the block insurance policy

shortly before they defaulted on the amount owed to Winsome/Forever.

These revelations point towards the conclusion that the UAE companies

were set up with the express purpose of siphoning off the money taken

from the banks.

Even-Zohar‘s report also revealed that most of these UAE companies

were, in fact, one-room fronts that did not have the required staff or

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facilities to store diamonds and jewelry. It appears no actual diamonds or

jewellery were bought by them though amounts in hundreds of millions of

dollars were accounted for in transactions with Winsome. Most tellingly,

all the UAE companies were owned by one Haytham Ali Salman Abu

Obidah, who Even-Zohar‘s report says, has worked for Winsome for the

past eight or nine years.

Winsome Diamonds denied the Even Zohar report and has had filed a

defamation case against him. The company had also issued a defamation

notice to The Pioneer for carrying a story that allegedly says the loan

money was siphoned off. Once Mehta left Winsome Diamonds, the

present company has condemned news reports which talk of the loan

default or file defamation cases against weak media institutions.

Why so late?

Most investors know Jatin Rajinikanth Mehta as a diamond trader, but

very few knew that Mehta is a close relative of industrialist Gautam Adani,

considered close to Prime Minister Narendra Modi.

Mehta‘s son Suraj married Krupa, the daughter of Gautam Adani‘s brother

Vinod Shantilal Adani, in 2012.

Winsome was incorporated in 1985 as Su-Raj Diamond India Limited,

apparently named after Mehta‘s son, who is now Vinod Adani‘s son-in-

law. Within months after the marriage, Mehta resigned from Winsome

Diamonds.

Indian media flashed the news that Mehta had given up his Indian

citizenship on June 2, 2016. Just two days before that, however, on May

31, the Enforcement Directorate had issued orders for provisional

attachment of immovable assets, plant and machinery worth Rs 171.97

crore belonging to Winsome Diamonds and Jewellery Limited, its promoter

Mehta and other group companies.

The outstanding loan of Winsome Diamonds group has already crossed

nearly Rs 7,000 crore, according to sources within banking circles. With

the CBI finally filing cases, it appears that the investigations has started

to come to an end. But will the guilty be punished?

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At Geneva, India agrees to total ban on

child labour Jun 14, 2017

GENEVA: India ratified on Tuesday two fundamental conventions against

child labour — the Minimum Age Convention, 1973 (Number 138), and

the Worst Forms of Child Labour Convention, 1999 (Number 182) — at

the International Labour Organisation (ILO) conference currentlyunder

way in Geneva.

With this, India has become the 170th member of the ILO to ratify

Convention Number 138, and the 181st to ratify Convention Number 182.

ILO has 187 member states. Labour minister Bandaru Dattatreya, who is

representing India at the conference, said the amended Child Labour

(Prohibition and Regulation) Central Rules completely prohibited

employment of children aged below 14 years in any occupation or

process, and of adolescents (aged 14 to 18 years) in hazardous

occupations and processes.

He added that the amended ruled provided a broad and specific

framework for the prevention, prohibition, rescue and rehabilitation of

child and adolescent workers.

"The momentum of the recent initiatives taken to eradicate child labour

has to be maintained as elimination of child labour is also crucial for the

attainment of sustainable development goals by 2030," Dattatreya said at

the conference.

Welcoming the ratifications, ILO director-general Guy Ryder said: "We all

recognise the great progress India has made against child labour in recent

years and the major role played by its convergence model of coherence

between public policies and services."

The conventions provide a framework for the abolition of child labour so

that each and every child has the opportunity to develop physically and

mentally to their full potential and not getting engaged in work that

jeopardises their education and development.

The conventions allow a distinction to be made as to what constitutes

acceptable and unacceptable forms of work for children at different ages

as well as stages of development. India will now be responsible to develop

and implement programmes to progressively eradicate child labour.

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UP farmers cry foul over loan waiver

Swati Mathur | Jun 14, 2017

HIGHLIGHTS

Farmers are protesting against UP government over the criteria

for identifying farmers eligible for a loan waiver.

The current procedure threatens to leave out a large chunk that

has faced acute agrarian distress, they say.

NEW DELHI: Farmer groups in Uttar Pradesh have upped the ante against

the Yogi Adityanath-led UP government over the criteria for identifying

farmers eligible for a loan waiver. They have alleged the current

procedure for identifying farmers threatens to leave out a large chunk

that has faced acute agrarian distress.

Soon after it came to power in UP, the state government announced it

would waive outstanding farm loans till March 31, 2016 of up to Rs 1

lakh, for small and marginal farmers. The government also said the

promise of aloan waiver would benefit 78 lakh farmers in the state. Uttar

Pradesh is home to 2.15 crore farmers of which about 1.80 crore are

small and marginal farmers. According to the state government's current

estimates, Rs 36,589 crore will only be able to service outstanding crop

loans of 37% small and marginal farmers in UP, leaving plenty of room for

complaint from those who are left out.

Those outside the waiver net have already cried foul, threatening to join

ranks with the building farmer movement across India to corner

the NDA government. President of Kisan Jagriti Manch, Sudhir Panwar,

said, "PM Narendra Modi was the ambassador of the BJP's promise of loan

waiver. He was the one who gave this promise legitimacy. Now, the

government is backtracking on its promises by only waiving loans for a

section of the affected farm segment. It appears that BJP's politics has

trumped fiscal discipline."

While farmer groups including Rakesh Tikait's Bharatiya Kisan Union's

have said the 'half-help' to the group is likely to do more damage to the

farm sector, Wali Ullah Engineer of the Indian Minorities Front on Monday

petitioned Governor Ram Naik against the UP government's decision to

leave farmers who have taken term loans from cooperative banks, out of

the loan waiver net. Sources in UP's Land Development Bank told TOI that

small and marginal farmers who took term loans adding up to over Rs

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4,000 crore, have been entirely excluded from the state's waiver move.

These loans for purchasing agriculture implements were for 5-10 year

duration.

A senior UP government functionary said, "We have approached the CM

several times over the need to include other affected farmers. But there

have been reservations because of resource constraints."

With Union finance minister Arun Jaitley announcing that the Centre will

not fund states' loan waivers, the state government is scrambling to put

together the resources to keep the poll promise. "One view is that the

profit-making corporations will be tapped for funds. However, the

government is facing immense pressure as a result of having to arrange

for an extra Rs 20,000 crore towards increased salaries following the

implementation of the Seventh Pay Commission," a government official

said.

Maharashtra urges banks to help farmers Alok Deshpande

MUMBAI, JUNE 14, 2017

Asks them to give loans of ₹10,000 for sowing Kharif crop

On Tuesday, the Maharashtra government asked district central co-

operative banks (DCCBs) and nationalised banks to help farmers who

have defaulted on farm loans by giving them loans of ₹10,000 so that

they can begin sowing their Kharif crop.

The State government will act as a guarantee for these loans, said

Subhash Deshmukh, Minister for Co-operation, Marketing and Textiles.

Lighting a small flame of hope for DCCBs — struggling post-

demonetisation after the Centre ruled that old currency notes their

customers had deposited would not be exchanged by the RBI, effectively

freezing much of their assets — Mr. Deshmukh said that nationalised

banks have been asked to adopt each of the 13 DCCBs in the State. ―We

have also written to RBI to not only provide new notes to these banks but

also to pay interest for the delay.‖

Affidavits for waiver

Meanwhile, to help ensure that ―real farmers should benefit from this

waiver‖, Revenue Minister Chandrakant Patil said, ―There will be strict

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conditions which will ensure that this happens. In addition, an affidavit

will be taken from farmers who avail of the waiver, stating they fulfil the

conditions.‖

The conditions will be set by a joint panel of farmers and government

officials. On Tuesday, farmers‘ representatives submitted to Mr. Patil a list

of names of people who will participate in the discussions.

Don’t want waiver: MLA

The government has also appealed to those who can pay their loans to

voluntarily come forward and forgo the waiver.

Rahul Kul, MLA from Daund, and former NCP MLA Sahebrao Patil have

already declared that they will not avail the waiver.

―I am a farmer and have been periodically repaying the instalments of

money borrowed by me. I will continue to do so in future as well. I, thus,

request you to exempt me from the loan waiver scheme,‖ Mr. Kul said.

Central Bank CMD to staff: PCA is a wake-up call for cleansing balance sheet

Rajeev Rishi

MUMBAI, JUNE 15: BUSINESSLINE

Being placed under prompt corrective action should be taken as a

wake-up call, requiring a do or die effort from each employee for

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cleansing the balance sheet of bad loans, said a top Central Bank of

India official.

This observation comes in the wake of the Reserve Bank of India

putting the public sector bank under prompt corrective action (PCA)

in view of its high net non-performing assets (NNPAs) and negative

return on assets (RoA). ―This fall from being placed in the category

of strong and the best banks to being placed under PCA calls for

deep introspection…During the last three decades we have slowly

but surely ceded market share purely on account of our inability to

keep pace with the changing times.

―The last decade we tried to correct this loss by aggressively

growing our book by taking on exposures in bulk disregarding the

wisdom of risk dispersion….We are today saddled with mounting

NPAs and inadequate capital...,‖ said Chairman and Managing

Director Rajeev Rishi in a candid communication to employees.

Rishi emphasised that NPA management has to be the bank‘s top

priority.

Stating that he has immense faith both in the capability and

commitment of the employees, Rishi exhorted the employees not to

let other matters dilute their efforts towards nursing the bank back

to health.

AIBEA THIS DAY – 16 JUNE

1992 All India Strike against new economic policies and price rise by Central Trade Unions including AIBEA.

ALL INDIA BANK EMPLOYEES' ASSOCIATION

Central Office: PRABHAT NIVAS Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001

Phone: 2535 1522 Fax: 2535 8853, 4500 2191 e mail ~ chv.aibea@gmail.com

Web: www.aibea.in